Memo On The President's Jobs Proposal

TO: House Republicans
FR: Speaker Boehner, Leader Cantor, Whip McCarthy, and Chairman Hensarling
DT: September 16, 2011
RE: The President’s Jobs Proposal

In August, we released our fall legislative agenda focused on implementing two key aspects of our jobs agenda, the GOP Plan for America's Job Creators: regulatory and tax relief for America’s small businesses, entrepreneurs and employers. This week, we completed action on the first of those items: blocking the federal government's National Labor Relations Board (NLRB) from unilaterally telling businesses in what states they can and cannot open up for business. Also, this week the President sent Congress his proposed jobs bill. Having had a few days to review his proposal, we wanted to take this opportunity and provide you with some initial reaction.

Last week, prior to his address to a Joint Session of Congress, we wrote to President Obama to discuss potential ways forward on job creation. In addition to highlighting the numerous pro-growth jobs bills passed by the House and awaiting action by the Democrat-controlled Senate, we told the President: “While it is important that we continue to debate and discuss our different approaches to job creation, it is also critical that our differences not preclude us from taking action in areas where there is common agreement.” We stressed that “[w]e shouldn’t approach this as an all or nothing situation.”

We were hopeful that the President was interested in finding common ground as well. However, the White House and the President’s campaign demanded that the bill pass in its entirety. David Axelrod, the President’s top campaign advisor, told ABC’s ‘Good Morning America’ that “We are not in negotiation to break up the package. And it’s not an a la carte menu.” Meanwhile, the White House Communications Director, Dan Pfeiffer, said, “The president said it 16 times, I’ll say it a 17th time today. He wants them to pass the American Jobs Act. That’s the piece of legislation he’s sending up.”

For the sake of 14 million Americans who are currently unemployed and the more than 4 million who have been unemployed for more than a year, we are pleased that the White House has begun to back away from that extreme. It is far more important that the focus be on delivering results for the American people rather than on the upcoming campaign. As the President himself said, “The next election is 14 months away. And the people who sent us here -- the people who hired us to work for them -- they don’t have the luxury of waiting 14 months.”

We believe there are areas of common agreement, and areas worthy of further conversation where agreement -- assuming there are good faith discussions -- may be possible.

Areas of potential common agreement and areas worthy of further discussion include:

Extension of 100 Percent Bonus Depreciation: The President has proposed extending through 2012 the ability of businesses to expense 100% of the cost of certain property they place in service. Bonus depreciation, which has historically been a bipartisan proposal, makes it easier for businesses to invest now in new machinery and equipment.

Addressing the Pending Application of Withholding on Government Contractors: Under current law as of January 1, 2013, businesses that provide goods or services to federal, state, or local governments will have 3% of their payments for such goods or services withheld. The President has proposed delaying this requirement until December 31, 2013. In the House Republican Fall Jobs Agenda, we proposed repealing this onerous withholding requirement.

Small Business Capital Formation: The White House fact sheet accompanying the President’s speech includes a proposal to “reduce the regulatory burdens on small business capital formation in ways that are consistent with investor protection, including expanding ‘crowdfunding’ opportunities and increasing mini-offerings.” While the legislative proposal transmitted by the President failed to include any language to advance these goals, the House Financial Services Committee is in the process of considering legislation that (1) increases the threshold at which small companies are subject to full SEC regulation (the current threshold is nearly twenty years old); (2) increase the number of shareholders a company can have before triggering SEC registration; (3) remove the SEC restrictions on "crowdfunding" so businesses can use marketing, such as social networks, to raise capital from a large pool of small investors who may or may not be SEC accredited; and (4) remove SEC restrictions so businesses can use marketing to seek unlimited amounts of capital from SEC accredited investors.

Incentives for Hiring Veterans: Current law includes employer tax credits for hiring disabled veterans (up to $4,800) and unemployed veterans (up to $2,400). These tax credits will expire at the end of 2011. The President has proposed expanding these credits. The House Veterans’ Affairs Committee is considering a more comprehensive effort to assist returning heroes, examining the range of challenges they face entering the workforce, including the need for education and training assistance and to address other barriers to employment. We believe there is an opportunity to make meaningful and significant progress in this area.

Unemployment Insurance System Reforms: The President has proposed a number of reforms to the Unemployment Insurance (UI) system, including “bridge to work” programs that allow the unemployed to pursue work-based training and enhanced reemployment assistance programs to target those most likely to be unemployed for an extended period of time. House Republicans recommended some of these very ideas to the President at the end of 2009. While the President links these reforms to a blanket extension of extended (up to 99 weeks) UI benefits and new federal spending, there is no reason we cannot move forward on these areas of agreement.

Free Trade Agreements: The President stated in his speech that, “Now it’s time to clear the way for a series of trade agreements that would make it easier for American companies to sell their products in Panama and Colombia and South Korea…” He also characterized this as a step that, “will require congressional action.” We agree. We will take action. But first, we need the President to take action and send us the agreements for our approval. We have repeatedly called on the President to unlock these agreements and clear the way for the creation of hundreds of thousands of new American jobs, while ensuring that we do not lose any more ground in our global competitiveness. In fact, last week we passed a bipartisan measure to extend the Generalized System of Preferences (GSP). We hope this action, and pending action in the Senate, will allow us to move forward on all three agreements.

Infrastructure Funding: The President has proposed $50 billion in “immediate” surface transportation funding and the creation of a new $10 billion national infrastructure bank. While spending to repair and improve infrastructure can play an important part in both short- and long-term economic growth, adding more money to the same broken system is more likely to produce waste and inefficiency than meaningful results. There are more than 100 federal surface transportation programs, many of which are duplicative or do not serve a federal purpose. Before spending new money, for example, we could act to end the mandatory set aside that diverts 10% of current surface transportation funds from roads and bridges to transportation museums and other “enhancements.” And the money we do spend ought to get to the job site faster. For example, of the highway funds provided over two and half years ago under the President’s stimulus bill, over 18% is still unexpended. In part, this is because of an overly complicated and bureaucratic approval process that everyone agrees ought to be fixed. Rather than adding more money to a broken system, Congress and the President should spend the next few months working out a multi-year transportation authorization bill that fixes these problems.

Payroll Tax Relief: The President has proposed an extension and a significant expansion of the current payroll tax holiday. The President would more than double the amount of the holiday (up from $110 billion this year to $240 billion in 2012, including an expansion of this proposal to some of the employers’ share of these taxes), and would sunset the entire payroll tax holiday effective January 1, 2013. So while employees would see an additional temporary benefit from this proposal in 2012 (the President would modestly expand the current payroll holiday), they would experience a larger effective tax increase 12 months later when the payroll tax reverted back to its full level. There may be significant unforeseen downsides to large temporary tax cuts immediately followed by large tax increases. Compounding this negative effect is the scheduled increase in all individual tax rates, capital gain and dividend rates, and the elimination/reduction of various individual credits and deductions. In short, we are creating significant new uncertainty in an already uncertain economy. Moreover, the proposal increases general fund transfers to Social Security, something that needs to be carefully considered given the long-term challenges facing that program and the implications of those challenges for taxpayers. Finally, the President proposes to pay for this one-year expanded tax holiday by permanently limiting the ability of those earning more than $200,000 a year to take full advantage of their itemized deductions, including their charitable deductions. With over 40% of charitable deductions being claimed by those impacted by this proposed policy, the practical effect is a tax on and a reduction in charitable giving. This will negatively impact thousands of churches and non-profits. House Republicans are supportive of tax relief for working families and small businesses, but the temporary relief proposed by the President must not cause unforeseen harm to the economy 15 months from now and it shouldn’t be offset with permanent tax increases; and it shouldn’t come at the expense of the nation’s charities. That said, a commitment to honest and fruitful discussions between the White House and Congressional Leaders could lead to potential bipartisan agreement on a plan that avoids these downsides and provides tax relief for the middle class that encourages short- and long-term economic growth and job creation.

There are also some aspects of the President’s proposal where it will be harder to find common ground. In addition to his proposed tax increases, we do not agree with the policies proposed by the President that are a repeat or continuation of spending from his 2009 stimulus bill. For example, the President has proposed:

Payments to State and Local Governments: The 2009 stimulus bill included $53.6 billion in state stabilization funds under the guise of preventing the layoff of teachers, law enforcement officers, and other municipal employees. This band-aid approach masked over the true fiscal problems facing states and local governments. Some jurisdictions used the funds to provide one-time raises; others retained employees for a short-period of time, only to lay them off later. The President is proposing more of the same with an additional $30 billion in spending.

Federal School Construction: School construction has historically been a state and local function. In his 2009 stimulus proposal, President Obama proposed approximately $20 billion for school construction, but the Democrat-controlled Senate rejected the proposed funding.

Neighborhood Stabilization Grants: The President has proposed a $15 billion initiative to rehabilitate and refurbish homes. This proposal is strikingly similar to the Neighborhood Stabilization Program which has already received $7 billion in funding. There have been allegations of misuse of funds and little evidence that the program delivered the promised results. Five Democrats actually joined with House Republicans in voting to terminate the program earlier this year.

Tax Increases: As the President himself has said, “…you don’t raise taxes in a recession.” With respect to the tax increases the President has proposed to pay for this package, many in his party seem to agree.

Consider these quotes from just one news story this week:

“Terrible,” Sen. Jim Webb (D-Va.) told POLITICO when asked about the president’s ideas for how to pay for the $450 billion price tag. “We shouldn’t increase taxes on ordinary income. … There are other ways to get there.”

“That offset is not going to fly, and he should know that,” said Democratic Sen. Mary Landrieu from the energy-producing Louisiana, referring to Obama’s elimination of oil and gas subsidies. “Maybe it’s just for his election, which I hope isn’t the case.”

“If we’re going to change something, we got to be sure that we do it in the total [tax reform] package, that they know what the rules of the road are,” said Sen. Kay Hagan (D-N.C.).

Democratic Sen. Mark Begich, from the oil-rich state of Alaska, said it was “frustrating” to see the president single out the oil industry after calling on the congressional [Joint Select Committee] in last week’s address to Congress to find savings. “When you start singling out certain industries, there’s an unfairness to it,” he said in an interview. “On the pay-fors, I have a problem.”

Tax Deductions and Exclusions: The President’s largest proposed tax increase is, as he describes it, on “the wealthiest Americans.” Perhaps it would more aptly be described as a tax increase on charitable contributions, mortgage interest deductions, and municipal bonds for states, etc. The President proposes to limit the value of certain deductions and exclusions for those with income above $200,000 ($250,000 for a couple). All but three Senators opposed an even more limited version this proposal when it was voted on in 2009, hardly the type of bipartisan agreement the President has claimed is his goal. It is understandable why this proposal is so vehemently rejected by the American people. Consider the impact of this proposal just on charities: more than 40% of all tax deductible charitable contributions are made by families impacted by this tax increase. Raising taxes on charitable contributions will mean smaller contributions and fewer resources for churches, food banks, universities, and other non-profits. During a week when it was reported that an astounding one in six Americans are living in poverty, why would anyone want to essentially penalize soup kitchens, hospitals, and churches that provide essential services to those hurting the most? Finally, this tax increase is the linchpin of a nearly half-trillion dollar permanent tax increase to offset another round of temporary stimulus spending and other tax changes. We actually changed the Rules of the House this year to prevent the use of tax increases to pay for more spending, a standard this proposal would violate.

Making Progress

We don’t question the President’s sincerity when he says he has crafted the right prescription for economic recovery. We believe good people can have honest disagreements without having their morals or commitment to country being called into question. To be clear, we don’t agree with portions of President Obama’s proposal, and Republicans have a different vision for the steps that need to be taken to help our economy get back to creating jobs. We are, however, committed to passing legislation to implement the policies in the areas where agreement can be found to support job creation and long-term economic growth. Over the past several days, many of you have approached us with ideas for legislation that meets these goals. We will be working with you and our committees in the coming days and weeks to schedule as many of these items as possible for consideration. It is our hope that Majority Leader Reid, the Democratic Majority in the Senate and President Obama will realize that while an all or nothing approach might make sense to some political advisors and communicators, it comes at the expense of making progress for millions of unemployed Americans -- and that is a tradeoff none of us should make.

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